Question: true or false, and explain. (a) [2] Consider a two-consumer economy in which A = B = (1/2, 5), uA(xA 1 , xA 2 )
true or false, and explain. (a) [2] Consider a two-consumer economy in which A = B = (1/2, 5), uA(xA 1 , xA 2 ) = min{xA 1 , xA 2 } and uB (xB 1 , xB 2 ) = xB 1 xB 2 . Then because there is an excess aggregate supply of good 2 in the economy and consumer A views both goods as perfect com- plements, we must have p 2 = 0 in a competitive equilibrium. (b) [2] Consider a two-consumer exchange economy in which consumer A owns the entire aggregate supply of good 1 (i.e., B 1 = 0). In a competitive equilibrium of this economy, consumer A does not get to choose the price of good 1
Step by Step Solution
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock
